Dual status tax returns

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clare
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Joined: Thu May 03, 2012 5:21 pm

Dual status tax returns

Post by clare »

Hi,

I'm trying to understand how to file as dual status. We were resident aliens for the first half of the year and left in July.
From publication 519 I understand that I file 1040NR as 'dual status return' and also include 1040 as 'dual status statement', but I'm a little confused about the details.
For the part of the year as a resident alien, the income includes W2 wages, bank account interest from a foreign bank, bank account interest from US bank, self employment income (not much). The only deduction is for state taxes.
For the part of the year as non resident, there is no US connected income at all.

I filled in 1040 for the first part of the year, and it seems to me that the form 1040NR for the full year is essentially identical (same income, same tax). Does this sound correct?

The only example I have been able to find is the one in publication 519 and it is the other way around (resident at end of year rather than non resident).

One other question - do we have to file the FBAR if we are dual status?

Thanks for any help you can offer.
nelsona
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Post by nelsona »

You have it about right. You simply include INCOME items on the 1040, and transfer those income items to the appropriate lines on the 1040NR (adding any US wages or self-employemnt income you got in the second half of the year).

Any deductions or creits come on the 1040NR only, and can be from the entire year.

Yes, you should file all FBAR, 8891, etc for the year.
Can I ask, though, why you don't just file a full-year 1040, using 2555 to exempt any Cdn wages? That almost always yields MUCH lower tax. Since you are married, I'm sure filing joint this way would be better than filing separately dual-status with 1040NR.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
clare
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Joined: Thu May 03, 2012 5:21 pm

Post by clare »

Thanks for your reply.
So essentially I am filing the same return I would file if non resident, but also including foreign bank interest for the part of the year I was resident?

I'm not sure about the benefits of full-year 1040 in our case (or even if it is possible). I'm not Canadian so my tax home was certainly the US until the time I left.

I will file the FBAR, I don't think 8891 applies in our case.
nelsona
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Post by nelsona »

Obviously your tax home was US until you left. The question is if you established a tax home elsewhere. If you didn't do this, you can't declare a departure adte earlier than dec 31 2012.

Well, then, where did you go after leaving US?

If you went to canada (since this a US-Canada cross border forum, I have to assume so), then you can and should be filing resident MFJ all year, and exempting your Cdn wages, rather than filing dual-status. Unless you made TONS of money when returning to Canada, MFJ full-year is best (just like when you move TO the US).

Unlike Canada, non-resident taxation is always MORE than resident taxation, not less. Since you need to follow all the US tax rules for trusts FBAR, FATCA, PFICs anyways, you might as well save some taxes too.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

For Cdn residents, IRS Pub 519 almost never is worth bothering with.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
JGCA
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Post by JGCA »

IFRS has no impact on one's cross border tax return its simply a way to get to financial statement income that will then be reconciled to taxable income.
For reasons why the US is not YET going to IFRS ask the SEC.
JG
gnham
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Post by gnham »

Hi Nelson (and others),

You said that filing full-year 1040 with 2555 almost yields "MUCH" lower tax. Looking at the calculations, the difference appears to be that you get to claim the standard deduction, but you have to pay tax based on the FEI tax worksheet.

Assuming a marginal tax rate of ~25%, the standard deduction results in the tax being lowered by about (6100 or 12200) * (marginal) = 1525 or 3050. (Single or MFJ)

However, by the calculations on the FEI tax worksheet, the foreign earned income is effectively taxed at (marginal - ~10%) = ~15%, which means you'd only have to earn about $10k or $20k in Canada for the two methods to come out the same.

Is there a major hole in my back-if-the-envelope calculation? (Are there any other common major considerations I'm missing?)

Thanks!
nelsona
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Post by nelsona »

Don't use envelopes, use software and pick the one that suits you best.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

You ust also consider that tax you would pay each filing separately rather than jointly.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
kayseegrant
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Post by kayseegrant »

Anyone expecting to get their returns easily this year?
hom3sl1c9
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Post by hom3sl1c9 »

I am in the opposite situation as the original post - I was an F-1 student for the first half of the year, TN for the second half. Sounds like I will be dual-status for 2013 (I meet the substantial presence test while in TN).

My question: I have NO US income while on F-1, only on TN. Do I still have to file the 1040NR part of the dual status return (the "statement"), or can I just use 1040? Can I claim my tuition credits on 1040 even though the expenditure occurred while under F-1?
nelsona
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Post by nelsona »

Anyone living in the US at year-end can elect to be treated as a US resident for the entire year, so long as one reports all world income for the entire year.

In your case this would likley be better (and less complicated) that dual status. So, don't bother with dual-status or anything in IRS Pub 519.

You vcan claim any deduction you are entitled to at that point, regardless of when in the year these occured.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hom3sl1c9
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Post by hom3sl1c9 »

So what you are saying is that dual status filing is an option, if for example I had non-US income from before I arrived in the US that I wanted to exclude, but not a requirement? This certainly isn't made clear in any of the IRS material I've read.

Thanks for your help.
nelsona
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Post by nelsona »

If you file dual-status, then of course you exclude non-US income for the first part (the non-resident part) of the year.

But that comes with a price: you can't use the standard deduction. I'm thinking that you don't have many itemizable deductions for the year, and as a student in US, what non-US income did you have?

If you choose to file a fullyear 1040, then you include all your 2013 income (US and foreign), but you get the standard deduction as well. And since you had to file a departure return in Canada, you would also have Cdn tax to use as a credit.



It is a choice, so you can choose to run your taxes both ways. I'm saying that in 99% of cases, Cdns moving to US are benefitted by filing full-year.

The right to file full-year is a treaty right; so no need to scour IRS documents, just use off the shelf on-line 1040 filing, and you will be fine, ust be sure to report all world income.

Don't forget to also file your CRA departure return, with your departure date being the day you got TN.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hom3sl1c9
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Post by hom3sl1c9 »

Interesting. Does this treaty right supersede the F-1 "exempted persons" designation such that I could have filed as a resident for 2012 in which I was F-1 the whole year?
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